Forex Major Currencies Outlook (June 6 – June 10)

USD 

ISM manufacturing PMI in May improved to 56.1 from 55.4 in the previous month. New orders and production components improved. Prices paid, although still very elevated, above 80, slipped more than expected. Customer inventories are still very low which gives hope for prolonged increases in production. Employment index has slipped into contraction but that is more likely due to issues with supply of labour than slowing of demand. Non-manufacturing PMI fared worse and came in at 55.9 vs 57.1 in April. Looking into data we could see a big drop in business activity (54.5 vs 59.1 the previous month) and backlog of orders (52 vs 59.4 in April) that caused the decline in reading. On the positive side, new orders, new export orders and employment components showed improvement while prices paid dropped. 

Headline NFP number for the month of May came in at 390k vs 325k as expected. Leisure and hospitality contributed with 84k jobs added followed by professional business services at 75k. On the other side, retail trade saw a decline of 60.7k. The unemployment rate stayed at 3.6% but participation rate ticked up to 62.3% from 62.2% in April. Average hourly wages came in at 0.3% m/m, same as previous month and 5.2% y/y vs 5.5% y/y in April. Tight labor market conditions will prompt Fed to stay on the path but the slowdown in wages may indicate that wage-price inflation will not get worse which could in turn cause Fed to be less aggressive with rate hikes. The yield on a 10y Treasury started the week at 2.745% and slowly climbed to almost 3% (2.984%) by the end of the week. FedWatchTool sees almost a 100% probability of a 50bp rate hike on June 15. 

This week we will have inflation data. Headline number is expected to remain the same y/y due to base effects slowly falling out of the calculation so much more attention will be given to m/m figure which is expected to continue rising. 

Important news for USD: 

Friday:

• CPI 

EUR 

ECB Chief Economist Lane stated that ECB should go with 25bp rate hikes in July and September and end negative interest rate policy by the end of Q3. This is a pushback against the hawks that are screaming for a 50bp rate hike in July. EU has imposed ban on import of Russian oil via sea over the next six months. Imports via the pipeline are not impacted, however it is expected that ban on them will also be introduced in the coming months. 

Preliminary CPI data for the month of May continued to move to the up and came in at 8.1% y/y vs 7.7% y/y as expected and up from 7.4% y/y in April. Monthly figure printed 0.8% m/m indicating that inflation is not slowing and not going anywhere any time soon. ECB may be nudged toward a 50bp rate hike in July after the reading. Core CPI rose to 3.8% y/y vs 3.5% y/y the previous month. Increase in rates will bring additional difficulties as French Q1 GDP reading was revised down and entered negative territory. 

This week we will have ECB meeting. There will be no changes in the rate, as the bank plans to first finish APP program in Q3 and then raise rates at July meeting. We will see new bank projections, most likely inflation revised up and growth revised down. 

Important news for EUR: 

Thursday:

• ECB Interest Rate Decision 

GBP 

Final manufacturing PMI for May was unchanged at 54.6. Output growth declined while input and output prices remained elevated reflecting increasing price pressures. The report paints a bleak picture showing “Forward-looking indicators from the survey suggest that a further slowdown may be in the offing. Business optimism dipped to a 17-month low and weaker demand growth led to surplus production, meaning warehouse stock levels are rising." 

AUD 

Q1 GDP data showed a rise of 0.8% q/q vs 3.6% q/q in Q4 and 3.3% y/y vs 4.2% q/q in the previous quarter. There was a huge improvement in terms of trade of 5.9%. Household spending rose 1.5% q/q and great bulk of that was on transport services, which rose astonishing 60% on the back of lower restrictions and reopening. Government spending was up 2.7% q/q while net trade detracted -1.7pp from GDP with exports dropping -0.9% and imports rising 8.1%. 

Official PMI numbers from China for the month of May have beaten expectations and improved from the April lows. Manufacturing came in at 49.6, up from 47.4, services were at 47.8, up from abysmal 41.9 the previous month which helped composite rise to 48.4 from 42.4 in April. A slow removal of covid restrictions lead to the improvements, however numbers are still below the 50 level. Caixin manufacturing PMI improved to 48.1 fro 46 the previous month on the back of rising input prices while new export orders and employment continued to weaken. 

This week we will have RBA meeting where 25bp rate hike is penciled in based on the latest inflation data. A rise of 40bp, which is also possible, would bring rate back to 0.75%. We will also get trade balance and inflation data from China. 

Important news for AUD: 

Tuesday:

• RBA Interest Rate Decision

Thursday:

• Trade Balance (China)

Friday:

• CPI (China) 

NZD 

RBNZ Chief Economist Paul Conway stated that there was no serious discussion about a 75bp rate hike at the last meeting. He added that there are more 50bp rate hikes on the way, but if economic indicators change there will be a revision to a rate hike path and warned about dramatic rise in inflation expectations. 

CAD 

BOC has delivered widely expected 50bp rate hike and raised the rate to 1.50% while continuing QT program. Inflation will continue to rise before starting to slowdown and the risk of inflation expectations becoming entrenched has risen. The statement shows that around 70% of CPI categories now show inflation above 3% Housing market activity is moderating from exceptionally high levels. The economy is strong and is "clearly operating in excess demand". There is a firm belief that interest rates will need to continue going up and bank is ready to act more forcefully in order to achieve a 2% inflation target. With all being said, we can see two more 50bp rate hikes at next two meeting which will bring rate to 2.5%. After that, if the data supports it, we could see more rate hikes and ultimately rates between 3 and 3.25% by the year end. 

Q1 GDP came in at 3.1% annualized vs 5.4% annualized. This was a big miss lead by exports whose volumes declined -2.4%. Household spending rose 0.8% q/q for a third consecutive quarter of growth. The report also notes improvement in household saving, compensation for employees and terms of trade. 

This week we will have employment data. 

Important news for CAD: 

Friday:

• Employment Change
• Unemployment Rate 

JPY 

The unemployment rate in April continued to improve, now sliding to 2.5% from 2.6% in March while jobs/applicants ration increased to 1.23 from 1.22 the previous month. The rate is returning to pre-pandemic levels of March 2020. Retail sales for the same time period rose 0.8% m/m and 2.9% y/y vs 2.6% y/y as expected. Sales for general merchandise, food and beverage as well as fuel sales were the biggest contributors. Industrial production came in at -1.3% m/m so the combination of rising retail sales, improving labor market on the one hand and falling industrial production on the other hand will have a mixed impact on Q2 GDP reading. Capex for Q1 came in at 3% y/y vs 4.3% y/y thus making it fourth consecutive quarter of increasing business investment. 

This week we will have final Q1 GDP data. 

Important news for JPY: 

Wednesday:

• GDP 

CHF 

SNB total sight deposits for the week ending May 27 came in at CHF754bn vs CHF754.1bn the previous week. Q1 GDP data came in at 0.5% q/q and 4.4% y/y vs 0.3% q/q and 4.3% y/y as expected. Inflation continued to rise and came in at 2.9% in May vs 2.5% in April. Swissy has gained strength as markets recalled Jordan’s warning about reacting if the inflation goes above their targeted level.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}